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Insurable Risks

Not every risk is insurable. In practice, only those risks that meet the following requirements are considered insurable risks:

1. The losses must be measurable
2. The losses must not be catastrophic risk for the insurer
3. The losses must be fortuitous (uncertain)
4. There must be a large number of homogeneous exposure units. The frequency and magnitude of future losses must be mathematically predictable, ie. can be calculated through mathematical formula.
5. The premium charged must be reasonable
6. The existence of insurable interest
7. The losses must not violate any law - eg. cannot buy insurance for your car speeding fine by the police.

Your Relationship with Money

“I’m living so far beyond my income that we may almost be said to be living apart.” - e.e. cummings




Very seldom do we hear of people asking us, “How is your relationship with your money?” It may seem a little intruding but honestly, if you’re asked this question, how would you answer? Are you guys still “talking” to each other, living apart or worse, “divorced”? Understanding your relationship with money is crucial in helping you manage it wisely.


What about My Past?
To understand the kind of relationship you have with your money, let’s flashback to the time while you were growing up. Most often than not, your perception about money were shaped by the adults around you. You probably picked up many feelings and ideas about money from your family.

If people in your family had to work very hard, you might think that making money means many jobs and long hours. If there were fights over money, you might feel that talking about money makes people angry or afraid. If your family had government assistance, you might feel sad, thankful or embarrassed. If you earned money as a child, you might feel good or bad. You might feel good about having your own money or helping your family. You might feel angry about needing to work.

What about Today?
Sometimes you can find out how you feel about something by finishing an idea in your own words. Try to complete as many as you can and be aware of your feelings when you go through them:

1. It is easy for me to spend money on ……………………
2. It is hard for me to spend money on ……………………
3. I like earning money because …………………………..
4. I worry about money when ……………………………..
5. I argue about money because …………………………..
6. Saving money makes me feel …………………………..
7. If I had enough money today, I would ………………….
8. Talking about money makes me ………………………..
9. When I buy things I don’t need, I ……………………….
10. I don’t know how to manage my money because ……….

What about Tomorrow?
The best way to plan for the future is to understand your past and your present. Knowing how you think and feel about money helps you ask important questions. Your answers can help you make good decisions. Try asking yourself the following questions and take some time to think through your answers.

· How much money is enough for my needs and wants?
· How can I earn the money I need?
· What about emergencies?
· What about all the things my family needs?
· How can I stop worrying about money?

How do Malaysians Feel about Money?
You need to think about your past and how it affects you. You also need to understand the influence of the world around you.

Malaysians in general value money. Very often, we see the lives of the rich and famous through the movies, reality TVs, sports, newspapers and magazines. In addition, advertisers tell us to buy, buy and buy some more. A lot of people act like money makes them important. We start believing that “newer and bigger” is better. We forget to plan before we spend.

Our culture shapes what we think and what we do. Let’s ask ourselves truthfully: Do we not think about famous people and wish we were like them? Do we not try to talk, dress or look like someone we admire? Do we not act like the characters we see on TV, in the movies or playing sports (yes, all you Beckhams wannabe!)? Do we not buy things because we want to be like the people in the ads (some may attest that their Nike T-shirt actually improve their game of golf!)?

Why do People Want Money?
People want money so they can live. They want money to take care of themselves and their families. But people also want money because our culture tells us: Money makes you important. Money equals self-esteem. You are what you earn.

Our culture also tells us that owning lots of things will make us happy. What we see and hear suggests that we can buy feelings. If we pay attention to all this hype, we can come up empty. We can end up without money or happiness.

What Can Money Do or Not Do?
While our culture says money is the answer to all our problems, we also hear that money is bad: Money is the root of all evil. Money corrupts! Let’s take a look at what can money do or not do:

It can buy a house, but not a home.
It can buy a bed, but not sleep.
It can buy a clock, but not time.
It can buy you a book, but not knowledge.
It can buy you a position, but not respect.
It can buy you medicine, but not health.
It can buy you blood, but not life.”

So you see, Money isn’t everything!

What Can Money Get Me Today?
With money you can take care of food, shelter and clothing. Everyone needs these to live. You also use money for services like healthcare, childcare, transportation, insurance and education. You need many of the things you have and the services you buy. Other purchases are wants – a new car, eating out, expensive clothes, vacations or just trying to keep up with our neighbours.

The key is not how much money you have but how you use it. You need to get your spending in line with your values. Your values are what’s important to you. This takes planning and practice. Unless you use money as a tool, it can easily become a trap!

What Can Money Do for My Future?
The choices you make today can change your future. When you do any of the following, you’re not just planning for next week, next month or next year but a lifetime:

· Choose to spend or not to spend
· Save for emergencies or “rainy days”
· Learn new skills to get or keep a job
· Pay off debts
· Become a good credit risk so that you can get a loan for big things like a car of house
· Show children and family the right uses of money

There you have it! Until and unless you have a good relationship with money, you’ll never be able to live with it. As the saying goes, “A fool and his money were soon parted.”

Next week, we’ll help you put in place a proper money plan by setting a budget. It’s something that everyone should have but don’t have it, at least, not yet. Till then, let’s, “Make Prudent Financial Management A Way of Life!”

Article from AKPK website

What would happen if my house is underinsured?

Many people try to save insurance premium by under-insuring their house. But, they do not know that by doing so, if something happens to the house, the insurance company will not pay them the total amount claimed for the loss.

If the amount of insurance is less than 80% of the value of the insured property, the insurer can apply the 'average clause' and pay the insurance owner less than the total amount.

For example:
Mr Wong has insured his home worth a market price of RM200,000 for only RM150,000, which is only 75% of the house's value. The house was partially destroyed by fire and the loss is estimated to be RM80,000. In this case, the claims paid would be:

RM150,000/RM200,000 x RM80,000 = RM60,000.

Had Mr. Wong insured the house to the market value, he would be able to claim RM80,000, possibly he does not have to use his own saving of RM20,000 to repair his house, because he gets paid only RM60,000 of what he loss.

Education Planning for Your Child - Why is It Very Important

Children Education is very important part of a personal family financial planning.

In Malaysia, many people especially those from low-middle income group have no plan to save money for their children education.

The main reason is likely because of the government and its agencies have been helping with education scholarship and loans, so they think their children will then get the same help.

Another reason is due to the fact that the low income group is not making enough money for their day-today expenses, hence saving extra money for children eduction seems not the highest priority. Those Malaysian who had hard times to get the education scholarship or loans in the past normally have plan their children education finance up front.

I think majority of the people can still afford to save some money for children education. If yes, or if you still think it is not important, then consider these points:

1. Do you want your children to start their life with a huge financial liability? You should not let your children take education loan and spent their entire life paying back. Imagine if you child take a 100K education loan. By the time she/he graduates, he/she starts the life with a big liability. First, there is a monthly payback of RM100-500 off from their net income - which will reduce their ability to allocate some money for your retirement. (There goes your retirement plan!). Then, they have to payback for years!! 
2. The children will probably blame you for their financial problem then.
   Considering they have to spend lots of money to start their life buying a car, getting married, buying a house, and more... while at the same time have to serve years of education loan that their parents decided for them. 
3. If you still count on your children to fund your expense during retirement - then you make a big mistake.
   That extra money that they could have given to you and your wife will then go into paying back their education loan. Or, like many people do, they withdraw their EPF or other retirement fund to pay for their children education resulting in shortage of their own money into retirement. When you do not have enough money to pay for your medical bills, then you get stressful, your already high blood pressure will then go even higher! Then, lots of other medical problem will 'visit you... :) 
4. Your children starts a life with likelihood of getting broke
   Because of being in difficult financial situation, children will then start using credit cards and fund their expenses using personal loans. We have seen many graduates complaining about having to resort to personal loans, which normally charges very high interests. Furthermore, if the child is the first in the family, he/she normally have to fund his/her brother/sister's education too, or have to renovate the parents house etc. 
5. Your children first 10 years career will be stressful Financial problem causes stress at home and at work. There are two things can happen, 1-your child work very hard to make extra money or extra increment, or 2) your child get demoralized by getting income or increment that is perceived as alway not meeting expectations, resulting in poor performance etc.
6. Your children first 10 years of marriage will be stressful - Stressful work and financial difficulties normally causes stressful marriage. 
7. Generational chain-reaction will occur - If your children graduates, make RM2500 per month but because of poor finance situation, then they will not be able to save money into their children's (your grandchildren) education plan. Then, your grandchildren will take education loan, which by then, has appreciated double the amount, then they will suffer the same way as your children. 

So, what you should do? I strongly recommend you think about and start your children education financial planning. I will write next time on how to do this. But for now, if want to do some calculation of how much is need and how much you should save per month, then you may visit education planning calculator tools provided by ASNB below.

http://www.asnb.com.my/webfinancialcalculator/Education/Education.aspx?culture=Auto

Amanah Saham Bumiputera - ASB Dividend Return

ASB Dividend - Amanah Saham Bumiputra (ASB) is actually one of the best personal investment in Malaysia given its reasonably high dividend return every year while protecting your investment capital. The average ASB dividend from 1990 to 2008 is 8.23%. With average bonus 2.76 cents, investors have enjoyed a good average annual return of almost 11%.  Had you keep RM10,000 in ASB back in 1990, it'd have grown to RM72,633.44 by end 2009. The good thing is, regardless of any recession, your invested money will remain positive.

In my opinion, ASB has been and will be the one of the best investment in Malaysia for many people. It provides good hedge against inflation of your cash, and you do not have to worry about the market performance at all.

(Dividen ASB: ASB sebenarnya adalah di antara pelaburan peribadi yang terbaik di Malaysia berdasarkan pulangan dividen ASB tahunan yang agak tinggi setiap tahun, secara puratanya ialah 8.23% sejak tahun 1990. Di tambah lagi dengan purata bonus sebanyak 2.76 sen setahun, pelabur mendapat pulangan yang cukup baik iaitu 11%. Secara kasarnya, sekiranya anda melabur RM10000 pada tahun 1990, wang anda meningkat kepada RM72,633.44 pada tahun 2009.)

The table & chart below show ASB dividend return and its bonus since 1990.

Retirement Planning

Envision Your Retirement

Retirement is a state of mind as well as a financial issue. You are not so much retiring from work as you are moving into another stage of your life. Some people call retirement a "new career."

What do you want to do in that stage? Travel? Relax? Move to a retirement community or to be near grandchildren? Pursue a favorite hobby? Go fishing or join a country club? Work part time or do volunteer work? Go back to school? What is the outlook for your health? Do you expect your family to take care of you if you are unable to care for yourself? Do you want to enter this stage of your life earlier than normal retirement age or later?

The answers to these questions are crucial when determining how much money you will need for the retirement you desire - and how much you'll need to save between now and then.

Let's say you plan to retire early, with no plans to work even part time. You'll need to build a larger nest egg than if you retire later because you'll have to depend on it far longer.

Estimate How Much You Need to Save For Retirement

Now that you have a clearer picture of your retirement goal, it's time to estimate how large your retirement nest egg will need to be and how much you need to save each month to buy that goal. This step is critical! The vast majority of people never take this step, yet it is very difficult to save adequately for retirement if you don't at least have a rough idea of how much you need to save every month.

There are numerous worksheets and software programs that can help you calculate approximately how much you'll need to save. Professional financial planners and other financial advisors can help as well. At the end of this booklet, we provide some sources you can turn to for worksheets.

Regardless of what source you use, here are some of the basic questions and assumptions the calculation needs to answer.

How much retirement income will I need?

An easy rule of thumb is that you'll need to replace 70 to 90 percent of your pre-retirement income. If you're making RM50,000 a year (before taxes), you might need RM35,000 to RM45,000 a year in retirement income to enjoy the same standard of living you had before retirement. Think of this as your annual "cost" of retirement. The lower your income, generally the higher the portion of it you will need to replace.

However, no rule of thumb fits everyone. Expenses typically decline for retirees: taxes are smaller (though not always) and work-related costs usually disappear. But overall expense may not decline much if you still have a home loan and children college expenses to pay off. Large medical bills may keep your retirement costs high.

Much will depend on the kind of retirement you want to enjoy. Someone who plans to live a quiet, modest retirement in hometown kampung will need a lot less money than someone who plans to be active, take expensive vacations, and live in an expensive place like Kuala Lumpur.

For younger people in the early stages of their working life, estimating income needs that may be 30 years in the future is obviously difficult. At least start with a rough estimate and begin saving something - 10 percent of your gross income would be a good start. Then every 2 or 3 years review your retirement plan and adjust your estimate of retirement income needs as your annual earnings grow and your vision of retirement begins to come into focus.

How long will I live in retirement?

Based on current estimates, a male retiring at age 55 today can expect to live approximately 24 years in retirement. A female retiring today at age 55 can expect to live approximately 28 years. And the likelihood of living at least 20 years for someone retiring at 55 today is high - over 64 percent for a man and about 75 percent for a woman.

These are average figures and how long you can expect to live will depend on factors such as your general health and family history. But using today's average or past history may not give you a complete picture. People are living longer today than they did in the past, and virtually all expert opinion expects the trend toward living longer to continue.

Planning for Retirement While You Are Still Young

Retirement probably seems vague and far off at this stage of your life. Besides, you have other things to buy right now. Yet there are some crucial reasons to start preparing now for retirement.

You'll probably have to pay for more of your own retirement than earlier generations.

The sooner you get started, the better.

You have one huge ally - time. Let's say that you put RM1,000 at the beginning of each year into an ASB from age 20 through age 30 (11 years) and then never put in another sen. The account earns 7 percent annually. When you retire at age 65 you'll have RM168,514 in the account.

A friend doesn't start until age 30, but saves the same amount annually for 35 years straight. Despite putting in three times as much money, your friend's account grows to only RM147,913.

You can start small and grow. Even setting aside a small portion of your paycheck each month will pay off in big dollars later.

Calculate your EPF saving projection if you contribute to EPF. Check if by age 55, you will have enough nest-egg to fund your retirement years.

If EPF is not enough or if you are not contributing to EPF, then you must start saving for your retirement. Developing the habit of saving for retirement is easier when you are young.